Supply Chains in Transition

Cutting energy and introducing renewables into the supply chain saves money, increases profits, improves the images of the companies involved and helps the environment. It sounds like a strategic direction in which any company would want to move.

Companies say that they do, indeed, want to wring energy costs out of their supply chains. It isn’t an easy task, however. Perhaps the biggest challenge is that it a group effort. A company acting on its own makes decisions to do things based on internal considerations and driven by that organization’s decision makers. That isn’t the case, of course, in a supply chain, which isn’t controlled by a single organization. Changing a supply chain requires all the companies involved to adjust how they go about their business and handle their relationship to each other. Change is dependent upon cooperation, open-mindedness, finesse – and overt and covert coercion.

Perhaps the best example is Walmart. The company, which says it eventually will solely use renewable energy sources, will cut 20 million metric tons of greenhouse gases from its supply chain by the end of 2015, according to a story at Supply Chain Management Review written by Elizabeth Sturcken, the managing director of the Environmental Defense Fund. The impact will be felt across Walmart’s entire operations – from the farms where its food is produced to its fleet. The composition of many of its products will change as well.

David Goldstein, the Co-Director for the Energy Program of the Natural Resources Defense Fund, presented a paper at the ACEEE summer conference in Buffalo in August. He told Energy Manager Today that the idea of wringing energy out of the supply chain is relatively new. Despite the obvious advantages, a good deal of research is necessary before the approach is fully enfranchised. “Few companies are doing analyzing and working with their supply chains today and even fewer make the information available,” he wrote.

He indicated that some momentum is building. “Organizations such as Carbon Disclosure Project and World Resources Institute (the organization that wrote the standard on how to calculate life cycle impacts) are encouraging greater acceptance of these methods.”

Goldstein also noted that California – through state law SB 375 and the California Sustainable Communities and Climate Protection Act of 2008 – and other areas in North America are addressing the issue of making supply chains more energy efficient and sustainable.

Contradictory Results

Supply chain sustainability and energy savings are deeply related topics. Environmental Leader reported on studies by West Monroe Partners and the World Economic Forum that found contradictory results. West Monroe found that 49 percent of companies don’t view sustainability as a high priority, though findings that suggest consumers are willing to pay more and wait longer for products suggests that there is a receptive audience. At the same time, the World Economic Forum found there are revenue increases, cost reductions and even boosts in brand value related to sustainable supply chain initiatives.

Taking Goldstein’s comments and the findings of the two studies together illustrated how much confusion – and how much potential — there is. On one hand, companies don’t see sustainability as a top priority. On the other, consumers are will to pay more for and wait longer to get goods that are the product of sustainable supply chains. Furthermore, these supply chains are financial superior to legacy systems.

The organization found that the rationale for supply chain energy efficiency is strong, but that the upfront costs can be significant and the process is not easy. “Much, in short, remains to be done before supply chain sustainability becomes more widespread across both industries and geographies. In the meantime, the business case for it is indisputable. By collaborating with their suppliers to drive mutual benefits, leading companies are making significant headway toward its achievement,” the paper concluded.

It Isn’t Easy

David South, a senior manager at West Monroe Partners and leader of the firm’s Sustainability practice and Yves Leclerc, a managing director and leader of the West Monroe Partners’ supply chain practice, looked at the ongoing dynamic as big companies try to drive efficiencies in their supply chains. The bottom line is that there are opportunities — and challenges.

“Big companies have a tremendous opportunity to influence the supply chain and many of them are leveraging their purchasing power to do just that,” they wrote in response to emails from Energy Manager Today. “Because some big companies are requiring companies to not only track carbon footprint but report on it, it’s shaping behaviors.”

It can be tough on the smaller companies, however. “[T]hese big companies aren’t allowing suppliers to increase prices or make other concessions like fewer deliveries or longer delivery windows, making it tough on suppliers to stay competitive – particularly for suppliers in the food industry that are also under tremendous pressure to remove preservatives and require more frequent deliveries. This could make it so that small companies can’t afford to be suppliers and reducing the number of vendors that may be in the supply chain for that particular product could create unwanted monopolies.”

Changes will not stop. In the near future, 3D printing will significantly reorder the supply chain. According to Material Handling and Logistics, this new technology will enable small manufacturing runs and far more closely match production with need, especially in cases in which the products are of low to moderate complexity.

The sense of the research is that leadership is needed. It’s still early in the game. Goldstein writes that “[t]here is not really much publically available information on supply chain energy efficiency right now so I would say there are no generic best practices.” This means that the big companies – the Walmarts, Apples and Sodexos of the world – need to step up and lead the companies who depend upon their business to upgrade their supply chains. There is some evidence that this is happening.